September 9, 2011

FSB urges Cameron to support banking reform

by Jan Harris

With the Independent Commission on Banking (ICB) due to release its final report on Monday, the national chairman of the Federation of Small Businesses (FSB) has written an open letter to David Cameron asking him not to ‘water down’ the proposed reforms.

The ICB is expected to recommend the separation of banks’ retail and investment divisions, in order to safeguard consumers’ accounts in the event of a crisis such as economic meltdown of 2007.

The FSB is concerned that the Prime Minister may be swayed by the banking lobby which has been vociferous in its claims that ring-fencing investment banking operations would harm the currently fragile economy even more.

It is believed that Chancellor George Osborne may delay implementing the proposals until after the 2015 general election.

The FSB is also urging the government to ensure that the proposed reforms are not used by the banks as an excuse to increase the cost of borrowing.

The banks argue that ring-fencing would mean that the government would no longer guarantee to bail-out a bank experiencing difficulties, as it did in the recent credit crunch.

This would mean that banks would need to hold more capital and would therefore have less money available to lend, pushing up the cost of loans.

The FSB suggests that this guarantee would stay in place for retail banking operations, while an increase in capital requirements and ring-fencing the retail operations would improve banks’ structural resilience.

The organisation wants any increase in capital requirements to be funded from ear-marked bank profits and cuts in short term incentivised pay, rather than by increasing the cost of loans to businesses.

Separately, the FSB has launched a poster campaign across Somerset and Wiltshire to encourage people to use local products and services.

The campaign is part of the FSB’s Keep Trade Local Week.

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